CALGARY, Canada – March 1, 2006 – Wi-LAN Inc. (TSX:WIN) today announced financial results for the three months ended January 31, 2006. All financial amounts are expressed in thousands of Canadian dollars, except per share amounts or unless otherwise noted.
Financial Highlights ($000’s)
Wi-LAN’s consolidated revenue for the three months ended January 31, 2006 was $4,460, compared with $5,505 for the three months ended January 31, 2005, and $4,633 for the prior three months ended October 31, 2005.
Intellectual Property (IP) Division revenue was $777 in the 2006 first quarter, compared to $nil of license, technology and engineering services revenue in the first quarter of 2005, and $439 of license, technology and engineering services revenue in the prior three months ended October 31, 2005. As well, in the quarter Wi-LAN received net proceeds of $9,635 pursuant to its settlement agreement with Cisco Systems Inc. announced on December 2, 2005. Wi-LAN has realigned its resources to increase its corporate focus on providing IP products and services to the broadband wireless access industry. Wi-LAN’s IP Division is positioned to provide its customers with industry-leading products and services including key WiMAX (IEEE 802.16) physical layer (PHY) and Media Access Control (MAC) core designs and software, semiconductor intellectual property design expertise, reference design kits for WiMAX subscriber and base stations, and access to Wi-LAN’s extensive broadband wireless patent portfolio. Target customers for the division include commercial broadband wireless access equipment manufacturers, integrated circuit (IC) manufacturers, and original design manufacturers (ODM’s).
Product Division revenue , including broadband wireless and antenna products, was $3,683 for the 2006 first quarter, compared to $5,505 of product revenue in the three months ended January 31, 2005, and $4,494 of product revenue in the prior three months ended October 31, 2005. On February 1, 2006, Wi-LAN announced it would exit its Product Division in an orderly manner. The company is pursuing potential partners interested in purchasing one or more of its commercial broadband wireless access product lines. Wi-LAN expects to ultimately reduce its workforce by approximately 50 positions through this phased action. On February 10, 2006 Wi-LAN announced it has entered into an agreement to sell its TIL-TEK Antenna assets for expected net proceeds of approximately $2 million. Wi-LAN expects to complete both of these actions by April 30, 2006.
Gross profit for the first quarter was $493 or 11.1% of revenue, compared to $2,440 or 44.3% of revenue in the 2005 first quarter, and $36 or 0.7% of revenue in the preceding three months ended October 31, 2005. IP Division gross profit for the first quarter was $749 or 96.4% of revenue. Product Division gross profit (loss) for the first quarter was $(256). Product Division gross profit was impacted negatively in the first quarter by inventory adjustments included in cost of goods sold, as detailed below under net income.
Net income for the first quarter was $3,390 or $0.08 per share, compared with a net loss of $(2,448) or $(0.06) per share in the 2005 first quarter, and $(16,881) or $(0.40) per share in the preceding three months ended October 31, 2005. Net income in the 2006 first quarter was reduced by $(3,671) due to inclusion of the following items:
- Inventory adjustments of $(1,585) included in cost of goods sold;
- A bad debt provision of $(935) included in sales and marketing expense;
- An allowance of $(1,010) charged to research and development expense for recent amounts claimed or claimable to Technology Partnerships Canada;
- Accrued severance costs of $(660) for the announced phased staff reduction of 50 positions that Wi-LAN expects to complete by April 30, 2006;
- A commission of $(582) paid to a director pursuant to an agreement with the Company for his involvement in the Cisco Systems Inc. settlement agreement, which was deducted from the gross proceeds of the settlement; and
- A gain on sale of property of $1,101 for recognition of the balance of the gain on sale of the Company’s head office building.
Wi-LAN’s cash balance as of January 31, 2006 was $8,374 (excluding restricted cash of $2,000 reserved for repayment of a short-term loan), compared with $3,690 as of October 31, 2005. Wi-LAN’s working capital (current assets net of current liabilities) as of January 31, 2006 was $4,870, compared with $1,017 as of October 31, 2005.
“We are continuing to execute on our strategy of leveraging our patent and technology strengths to take advantage of the transitioning of the broadband wireless equipment market to large companies offering high-volume, low margin, standards-based products to large telecom service providers,” said Bill Dunbar, President and CEO, Wi-LAN Inc. “The first quarter results reflect the transition period that we are going through as we focus on intellectual property opportunities, and work to exit our product business. Our continuing IP revenue growth in the quarter and funds from our settlement with Cisco are preliminary indicators of the value of our intellectual property products, patents and expertise. The Cisco settlement demonstrates our resolve to assert, protect and monetize our intellectual property. ”
The Company is continuing to evaluate various financing and strategic alternatives, which include, but are not limited to, seeking investment from industry partners, strategic investors, existing shareholders or other investors, and selling of assets.
Additional financial information is available in the unaudited Consolidated Financial Statements and Notes attached to this release.
Agreement and Lawsuit Settlement with Cisco
On December 2, 2005 Wi-LAN announced the execution of an agreement with Cisco Systems Inc. in which the companies agreed to terminate all legal actions pending between them. Under the agreement, Cisco purchased from Wi-LAN several issued and pending patents relating to WiMAX and antenna technology, and has granted Wi-LAN a license to use these patents in its products. Wi-LAN will retain ownership of its remaining patent portfolio, including its W-OFDM patents and the majority of its other patents that relate to implementation of WiMAX and other broadband wireless systems. As part of the agreement, Cisco also received a license to Wi-LAN's patent portfolio. The closing of the agreement took place on January 6, 2006 and the Company received proceeds of $11,648 (US$10 million). The settlement, net of related costs, resulted in a net gain of $9,635.
Exit of Product Division
On February 1, 2006 Wi-LAN announced that it would continue actions to focus on building the value of its core broadband wireless intellectual property business by exiting its Product Division in an orderly manner. Wi-LAN’s products incorporate market-leading technology and have been well received by the market, but the Product Division is not profitable and the company is unable to sustain the ongoing development expense and working capital requirements of the product lines while also growing the intellectual property business. Wi-LAN expects to complete this phased action by the end of its second quarter on April 30, 2006, ultimately reducing its workforce by approximately 50 positions. The company is pursuing potential partners interested in purchasing one or more of its commercial broadband wireless access product lines. Wi-LAN will work cooperatively with its suppliers, customers, distributors and other stakeholders to ensure an orderly transition of the business.
Search for Successor CEO
On February 1, 2006 Wi-LAN announced that it has engaged Ray & Berndtson, an executive search firm, to find a successor to Bill Dunbar, its President and CEO. This search will be global, and will seek internal and external candidates. Mr. Dunbar has been President and CEO of Wi-LAN since February 2005, and has provided the guidance and leadership that the company needs as it moves through a transition period and increases its focus on its core broadband wireless intellectual property business. Mr. Dunbar will work with the successful candidate to ensure continuity of the business plan and will remain as a member of the board of directors after the new President and CEO is appointed.
In the February 15 press release, Bill Hews, chairman of Wi-LAN Inc. said “Bill Dunbar stepped in to provide the leadership required at a difficult time as Wi-LAN reorganizes to focus on its core strengths. This executive search engagement implements a succession plan that supports the new needs of the company as it goes forward.”
Sale of TIL-TEK Antenna Division
On February 10, 2006 Wi-LAN announced it has entered into an agreement to sell the assets of its TIL-TEK Antenna Division to Kavveri Telecom Products Limited of Bangalore, India. The sale is subject to a number of conditions including entering into a definitive agreement and the approval of the boards of both Wi-LAN and Kavveri. Wi-LAN expects to receive net proceeds of approximately $2 million when the sale is completed. The parties are working to finalize the transaction within six weeks.
On February 15, 2006 Wi-LAN announced that Dr. Hatim Zaghloul has resigned his position as a director of the company, citing concern that the company was not moving quickly or aggressively enough on enforcing the company’s patents. Dr. Zaghloul is in agreement with the initiatives undertaken by management to restructure the company. Dr. Zaghloul is a co-inventor of certain broadband wireless patented technologies that Wi-LAN was founded in 1992 to commercialize. Prior to his resignation as chairman of the board in 2005, Dr. Zaghloul held various management positions at Wi-LAN, including president and CEO.
Conference Call Information
Wi-LAN will hold a conference call to discuss the 2006 first quarter consolidated results today at 11:00 a.m. Eastern time (9:00 a.m. Calgary time). The call-in number will be 1-800-275-2442 (toll free North America) or (973) 409-9258. Participants are advised to call in 10 minutes early. The call will be webcast from Wi-LAN’s website at www.wi-lan.com and will be archived there.
Wi-LAN participants will be:
Mr. Bill Dunbar – President and Chief Executive Officer
Mr. Keith Bittner – Chief Financial Officer
Mr. Dave King – Senior Vice President & General Manager - Product Division
Mr. John Seliga – Senior Vice President & General Manager - IP Division
Mr. Ken Wetherell – Vice President, Corporate Communications & Investor Relations
A replay of the call will be available until 11:59 p.m. Eastern time on March 8, 2006 by calling 1-877-519-4471 (toll free North America) or (973) 341-3080. The access code for the replay is 7087380.
Finanical Statements and Notes
Q1 2006 Finanical Statements and Notes (PDF 73K)
About Wi-LAN Inc.
Wi-LAN is a global provider of broadband wireless communications products and intellectual property, offering effective, economic and secure wireless high-speed communications solutions. Wi-LAN believes its portfolio of patents is necessary for the implementation of WiMAX Forum Certified devices and devices using the IEEE standards 802.11a and 802.11g (the 2nd generation Wi-Fi Alliance standards). Wi-LAN is a charter member of the WiMAX Forum (www.wimaxforum.org). Detailed information on Wi-LAN can be found at www.wi-lan.com.